Hedge Fund Tracking: Blue Ridge Capital (John A. Griffin)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13Fs here.)

Alright, so now we're cruising through these hedge funds having already covered Steven Mandel's Lone Pine Capital and Boone Pickens' BP Capital. Next up, we have one of my personal favorites: Blue Ridge Capital run by John A. Griffin.

Now, Griffin is similar to Mandel/Lone Pine in that he too is Tiger Cub (a.k.a pupil of Julian Robertson at Tiger Management). However, there is one difference between Mandel and Griffin; Griffin was Julian Robertson's right hand man, while Mandel was merely an analyst (right, "merely," look where he is now haha).

So, needless to say, the dude knows his stuff. Blue Ridge seeks absolute returns by investing in companies who quite simply dominate and shorting the companies who have fundamental problems. And right off the bat that presents us with a bit of a problem in terms of analyzing 13Fs. 13Fs don't show short positions, they show long positions (unless the firm is short through puts, which we *can* see). So, the inherent problem with analyzing Blue Ridge (or any fund for that matter) is that we can't see the other side of their portfolio.

But this is increasingly important for Blue Ridge simply due to Griffin's investment strategy and the fact that his long positions could in essence only represent half of the portfolio. Now, I use that loosely because there's no way for me to know exactly how much of his portfolio is short. But I do know that both Griffin and Lee Ainslie over at Maverick Capital (research on him coming later this week) like to effectively hedge with a balance of both long and short positions (like a TRUE hedge fund... not like some of these crazy funds these days with no true hedging). Here's the thing, they don't do pairs trades, so don't classify it as that. I remember specifically being told by representatives at Maverick that they don't pairs trade, even though a respective long and short could be in the same sector or sub-sector. So, make that distinction clear. But we'll work with what we've got (and believe me, it's still a lot of solid info). Onto the 13F's!

The following is Blue Ridge Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions: (in no particular order)

• Apple (AAPL) 1,150,000 shares
• Burlington Northern (BNI) 700,000 shares
• Eagle Materials (EXP) 1,965,000 shares
• Echostar (SATS) 1,906,000 shares
• Federal Home Loan Mortgage Corp (FRE) 500,000 shares
• Federal National Mortgage Assoc (FNM) 480,000 shares
• Fidelity National Information (FIS) 1,470,000 shares
• First American Corp California (FAF) 1,050,000 shares
• Google (GOOG) 493,000 shares
• MBIA (MBI) 2,500,000 shares
• Millipore (MIL) 2,700,000 shares
• Office Depot (ODP) 3,400,000 shares
• Research in Motion (RIMM) 600,000 shares
• SLM Corp (SLM) 1,130,000 shares
• St. Joe Co (JOE) 645,000 shares
• Wyeth (WYE) 3,500,000 shares

Added to:

• American Express (AXP) increased by 167% (5,393,200 more shares)
• Berkshire Hathaway (BRK.A) increased by 13% (98 more shares)
• Compton Petroleum (CMZ) increased by 15.5% (890,400 more shares)
• Fairfax Financial (FFH) increased by 50% (63,315 more shares)
• First Marblehead (FMD) increased by 549%, no that's not a typo... 549% (1,154,500 more shares)
• Fomento Economico Mexicano (FMX) increased by 103% (1,050,000 more shares)
• Grupo Aeroportuario Del Paci S.A.B (PAC) increased by 53% (1,225,700 more shares)
• Martin Marietta Materials (MLM) increased by 17.5% (235,800 more shares)
• Netflix (NFLX) increased by 210%, not a typo either (1,377,700 more shares)
• Packaging Corp of America (PKG) increased by 30% (958,264 more shares)
• Starbucks (SBUX) increased by 19% (1,150,000 more shares)

Reduced Positions:

• Broadridge Financial Solutions (BR) decreased by 2.2% (sold 161,501 shares)
• Coach (COH) decreased by 38% (sold 1,440,000 shares)
• Discovery Holdings (DISCA) decreased by 4.6% (sold 348,200 shares)
• Formfactor (FORM) decreased by 25% (sold 295,000 shares)
• Smurfit Stone (SSCC) decreased by 38% (sold 881,099 shares)

Removed Positions

Positions Blue Ridge sold out of completely:

• Baidu (BIDU)
• Domtar (UFS)
• FedEx (FDX)
• Gafisa (GFA)
• Grace WR (GRA)
• ishares TR Puts (IFGL Puts)
• Level 3 Comm (LVLT)
• Macys (M)
• Mastercard (MA)
• Microsoft (MSFT)
• Microsoft Calls (MSFT Calls)
• Novastar Financial (NOVS)
• Nutrisystem (NTRI)
• Pier 1 Imports (PIR)
• Sears (SHLD)
• Sterlite (SLT)
• Teekay (TK)

Positions with no change:

• America Movil (AMX)
• American Express Calls (AXP Calls)
• Corus Bank (CORS)
• Covanta Holdings (CVA)
• Crocs (CROX)
• Elong (LONG)
• Evergreen Energy (EEE)
• Gold Reserve (GRZ)
• Greenlight RE (GLRE)
• Grupo Televisa (TV)
• Indymac Bank (IMB)
• Perfect World (PWRD)
• Charles Schwab (SCHW)
• Target (TGT)
• Thermo Fisher Scientific (TMO)
• Walmart (WMT)
• Washington Mutual Puts (WM Puts)
• Web MD (WBMD)

Top 10 Holdings by % of Portfolio:

1. AXP (Top Holding)
2. CVA
3. GOOG
4. MIL
5. TV
6. AAPL
7. SCHW
8. PAC
9. AMX
10. DISCA

Breakdown

Alright, there's a lot to cover here. The first major thing I noticed was Griffin selling out of MA entirely and seemingly replacing it with AXP. He beefed up his position in AXP by 167% and brought it all the way to the fund's top holding. So clearly they wanted some credit risk to go along with the transaction processing. AXP offers the play on global transition from cash to plastic like MA and V, but they offer the added benefit/detriment (depending on how you look at it) of exposing themselves to credit risk as well. Many would argue that AXP has higher credit quality than that of, say, a Capital One (COF) or other banks of the like.

But my favorite way to play credit cards is still MA, straight up. I can definitely see the play on AXP as well and, don't get me wrong I like it, but I'm a big advocate of MA for pure transaction processing. So considering that numerous other Tiger Cubs (ex-Tiger Management funds) still hold MA, it was interesting to see Griffin be the sole person to completely sell off MA. Others merely took profits while he completely swapped out in favor of AXP. It will be very interesting come next quarter to see if any other funds in the Tiger family (Maverick, Lone Pine, Viking) added to AXP following Griffin and Blue Ridge's lead.

Second, just like Lone Pine, we saw Blue Ridge load up on tech, especially the titans AAPL GOOG and RIMM. Obviously all the old Tiger Cubs still keep in touch and share ideas and they all saw screaming opportunity in these names when they sold off hard. Griffin just started his position in GOOG and already brought it up to the 3rd largest fund holding, so he really loaded up. He also just started his position in AAPL and brought it to the 6th largest fund holding. So, as you can see, Griffin really likes these names and now is laughing at everyone who was selling at the lows while he was scooping those shares up in mass (both GOOG and AAPL up significantly since his pick up). So I expect him to obviously take some profits in these names come next round of 13F's, but I'm sure he will still hold a core position.

Thirdly, I noticed the Latin American theme going on. A lot of the ex-Tiger Management guys have been in AMX for a while so that was no surprise to see that still as a top 10 fund holding. However, what I noticed was Griffin slowly but surely building positions in other names. He added to FMX and increased his stake by 103%. He added to PAC by 53% and brought it to the 8th largest fund holding. And, not to mention, he's still got his big chunk of TV sitting as the 5th largest holding of the fund. So, Latin America is a big part of Blue Ridge's portfolio. And, he covers all industries. FMX with beverages, TV with television/entertainment, and PAC with airport service. (For the record, I love FMX and have for a while. I'll definitely be looking more in depth at those other two names.) So, overall so far we've got two themes: technology and Latin America.

The next major thing that quite simply confused me was Griffin adding FRE, FNM, FAF and MBI as new positions. I'm not sure if he was screwing around with Fannie and Freddie and bond insurers because he was trading them or if he saw something that the rest of us don't (that wouldn't surprise me either). But  I've got to say that this move puzzled the hell out of me as I wouldn't touch any of those things with a 10 foot pole. But it's there and he added them so take it for what its worth, but I have no idea how to explain that to you all. He also beefed up his position in FMD, an education lender by a whopping 549%. So, he wasn't messing around with these names, he was picking up shares in mass. Again, I'm not going to try and pretend to explain these moves because frankly bond insurance and the whole fannie/freddie complex makes no sense to me. I don't necessarily want to sit around reading hundreds of thousands of pages like Bill Ackman did in order to better understand the bond insurers, etc. So, there's the information, do with it what you will haha. But I'm not touching any of them.

This next addition really got me interested. In all the major funds I follow I've never seen this company in any of their portfolios: Millipore (MIL). And, Blue Ridge came in last quarter and started a position in it... and a massive one at that. Its the fund's 4th largest holding and it came out of nowhere. Millipore is a life science company and honestly I thought about adding it solely because Griffin came in and added it with such conviction. I'm doing more research on it now but definitely keep it on your radar. Griffin already has a solid maintained position in Thermo Fisher (TMO) to play the lab equipment side of things. I would not at all be surprised to see it in other funds' portfolios here come next quarter. Blue Ridge added a pretty massive position in this thing and I thought it deserved its own paragraph worth of mention.

Lastly, I just want to tie up a few odds and ends that are worth mentioning. Blue Ridge, much like Lone Pine, seemed to be closing out a lot of retail positions (reducing COH by 38%, removing M, SHLD, and PIR completely). But what struck me as odd was that Griffin sold out of all these retail names, and then goes and starts a position in Office Depot (ODP). So I was confused by that for sure. Maybe he saw some compelling valuations in ODP? I'm not sure. Ex-Tiger buddy Lee Ainslie and Maverick Capital have a large position in OfficeMax (OMX) not the Depot, so that made me even more confused, as usually you will see similarities between their portfolios.

But Blue Ridge picked up some shares of the rival. I don't like either of these companies to be frank. ODP has a lot less debt, but is also trading at slightly richer valuations than OMX. Whaaaatever. Also, I noticed Griffin added to his SBUX a little bit, obviously on the news that Schulz would be back to shape things up in that slowing mammoth of a company. Next, I thought it was worth mentioning that Blue Ridge started a position in St Joe Co, a real estate development company. First off you've got Lone Pine starting a position in CB Richard Ellis ((CBG) commercial real estate), and now you've got buddy pal Blue Ridge starting a position in JOE. Veeeery interesting. So, once again, something to watch in the coming months to see if other ex-Tiger funds start adding plays similar to these (or the exact same names). Again, I'm not touching these names as I think I can get much better return for my money in other sectors. But, then again, these guys are the hedge fund managers and obviously are a lot smarter than I.

Next, I just want to point out that Blue Ridge sold out completely of their Nutrisystem (NTRI) position and at the same time last quarter Lone Pine added quite a large short position in NTRI through puts. If I was Mandel I'd probably have called up Griffin and said "hey yo I'm gonna short the shit out of NTRI so you might wanna wrap that position up... mmmmkay thanks bye."

Ok, speaking of wrapping up, I want to highlight the fact that Blue Ridge has a measly 1 put position listed in their entire 13F... yup, just 1. Washington Mutual (WM) Puts. So we get our tiny glimpse at what Griffin is on the short side of things with. Again, remember he is undoubtedly short a few/a lot of names in the fund but we don't get to see those on 13Fs. The only things we can see are long equity positions, call positions, and put positions. So, as I assumed coming into this: he is just straight up shorting rather than using puts. So everybody go short the crap out of WM. Oh, wait, it's already been driven down hard. Enter sad face here. And that's a wrap, thanks for reading.

My personal favorites out of Lone Pine's Portfolio:

• AAPL
• MIL
• AXP
• FMX
• TV
• PAC
• AMX
• WMT
• TMO

Most interesting move(s):

1. Adding a boatload of technology and Latin American names
2. Adding Fannie/Freddie/MBIA/First Marblehead ........... ?!?!
3. Exchanging MA in favor of AXP by a lot. AXP = Fund's largest holding now
4. Adding Millipore (MIL) out of nowhere... and with conviction
5. Selling lots of retailers and yet starting a stake in Office Depot. what?!?

Disclosure: Of their positions, I'm long AMX AAPL FMX WMT TMO. I will most likely be long after I finish research: MIL TV PAC

Comments

[G-Rab]

Thanks for a great analysis. I'm familiar with Blue Ridge Capital and subscribe to the same investment philosophy. I was equally puzzled by seeing some of the mortgage lenders in their portfolio and also puzzled to see some names that I'd actually expect to see on the short side (e.g. Netflix, Nutrisystems). So do you think it's possible that some of these longs are actually net short positions due to Blue Ridge carrying more shares short to balance out these long reported shares? I'm not sure why they would do this or how or if it's even feasible under the regulations, etc., but I'm just wondering. One reason could be to get access to companies' mgmt by showing long positions in a stock that you're actually short? This is pure conjecture - let me know your thoughts, since you know more about these 13Fs. Again, thanks for the great analysis.

[marketfolly]

G-Rab thanks for the compliments. You're right in your thinking in that I'm sure some of these funds do indeed "manipulate" their holdings to make it seem like they are holding something when in actuality they are short... since they know that short positions are not reported in the filings. There's no way for us to know though. And, that's the reason why I track more value oriented funds because if they're really in it for the value of the company then they would hold over an extended period and it would be very hard to misconstrue a position that they have been accumulating over a few quarters.

In terms of nutrisystem specifically... they were long and then sold out of it. I found this move very interesting because Lone Pine Capital (another ex-Tiger mgmt fund) has a heavy short position in nutrisystem via puts. So, you could be right in that Blue Ridge might have had a net short position in nutrisystem all along, and like you said they could have just been trying to access mgmt by showing them their long position. I think that would be a very feasible situation, and that just gets even more in depth in terms of analyzing these things. We can speculate, but never really know for sure. That would make perfect sense to me though given that Lone Pine had a solid short size position through puts. Good thoughts overall. You can see the write-up I did on Lone Pine on my blog as well.

[DMJenay]

Always enjoy reading these. Thank you.

Quick question: could one of the "puzzling" long positions that you mentioned just be short-covering? In other words, if he was heavily short the bond insurers and then covered some of his position, we would only see the long.

Thanks again